‘The Rise and Fall of Urban Economies’

By Jon Christensen

Published
11:43 am PDT, Thursday, September 17, 2015

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A review of “The Rise and Fall of Urban Economies: Lessons From San Francisco and Los Angeles” might cheekily be headlined simply “Beat L.A.,” or, with a little more nuance, “How San Francisco Beat L.A. — for Now Anyway.”

This is a very serious new book about economics and policy written by a team of academics under the leadership of Michael Storper, a professor of urban planning, economic geography and economic sociology with joint appointments at UCLA, the London School of Economics and Political Science, and Sciences Po in Paris. But it is written in a very accessible style, using the structure of a scientific detective story. And it is a must-read for anyone who cares about the future of California and cities more broadly.

The mystery is why the Bay Area and Greater Los Angeles metropolitan regions, which were essentially similar by many important measures in 1970 — especially real household incomes, but also innovation, investment, education and creative jobs — have diverged so dramatically in the years since. The Bay Area has continued to rise in the top ranks of metropolitan areas and now enjoys real average household incomes (minus housing costs) 50 percent higher than Los Angeles, along with higher educational attainment and more creative jobs, patents and venture capital investment. Los Angeles has fallen badly behind in all of the same measures and is now at risk of dropping into the rank of middling urban regions.

Although L.A. is now trying to play catch-up with a “Silicon Beach” cluster of tech and media businesses around Venice and Santa Monica, the Bay Area definitely won the “new economy.” And L.A. lost it.

The question is: Why? And how? Or to continue the detective metaphor: Whodunit?

Like forensic detectives, Storper and his co-authors systematically examine the usual suspects — the decline of the aerospace industry in L.A., the rise of Silicon Valley, different immigration patterns, changing educational attainment, economic development policies, amenities and more — and carefully dismiss them as causes one by one. They come to the provocative and persuasive conclusion that the answer is the “zeitgeist,” cultures of business, policy and governance that differ significantly between the two regions.

An “open source culture” in the Bay Area enabled more open paths of movement and trade of people, ideas and capital between firms, as well as between business and academia. By contrast, in Los Angeles, a top-down, “big dog” culture prevailed in business and government, along with the self-contained firms and management systems that historically characterized big Hollywood studios, big aerospace and big pharma. “Invisible colleges” — vibrant relational networks of investors, entrepreneurs and scientists — thrived in the Bay Area, but not in L.A.

The Bay Area also has a deeper, more self-conscious history of regional thinking. The bay itself is an obstacle that fractious cities and counties had to collaborate to bridge, literally and metaphorically. The movement to save the bay helped to create a regional identity, too. And as the new economy developed, business and civic leaders such as the Bay Area Council relentlessly beat the drum for the region’s “interconnected innovation system,” the importance of human capital as well as venture capital, and the shared vision of creating a high-wage, high-skill economy.

Meanwhile, L.A. vacillated. To be fair, L.A. was hit harder by the nationwide recession of the early 1990s, suffered a more severe, longer decline in real estate values, and then confronted the devastating Rodney King riots in 1992. Although L.A.’s leaders occasionally talked about the “new economy,” they actually focused much more on trying to keep light manufacturing in the city, reduce business and development costs, and improve the vast logistics and transportation system around the ports in San Pedro and Long Beach, together the largest container port in the country.

While the Bay Area took the “high road” of the “new knowledge economy, stressing technology, innovation and skills,” Storper and colleagues write, Los Angeles took the “low road” and has paid the price.

“Los Angeles leadership persisted in believing they could turn back the clock and become cheaper, and by traveling this low road they could hence compete with Texas, Alabama, and Mexico,” the authors write. “They did some of this in the name of social justice, calling for jobs for low-skill workers. But these noble intentions emerged from belief structures about economic development that were antiquated and inappropriate to the high-cost club of regions to which Greater Los Angeles belongs by virtue of its size and density and the irreversibly high land, labor, and consumer prices that this status brings with it.”

And that has made all the difference in the world, for now, anyway. San Francisco and Los Angeles are still in the same league, but L.A. is on the bubble. While the Bay Area has “outperformed most metropolitan areas” in the United States, the authors write, “Los Angeles has foundered.” Among all of the major metropolitan areas in the country, they add, Los Angeles now “most closely resembles Detroit.”

If anyone in L.A. is paying any attention, and they better be, that has got to hurt.

But when everyone in the Bay Area is done gloating, there is a cautionary note here for you, too. Storper and colleagues write that the “one-horse town” quality of Silicon Valley may prove a potential weakness for the region in the future. Many of the region’s notorious disrupters are becoming corporate giants and starting to act like it.

So don’t get complacent, friends, or you might end up like L.A., on Silicon Beach, desperately trying to catch a wave that passed us by.